Tuesday, 15 May 2012

Asian markets, euro hit as Greece set for new vote

Posted: 16 May 2012 1137 hrs

HONG KONG: Asian markets fell Wednesday and the euro was stuck at four-month lows on news Greece will go to the polls again after talks to form a coalition failed, stoking fears it will exit the eurozone.

The developments came as France's new pro-growth President Francois Hollande held his first talks with German Chancellor Angela Merkel, the main proponent of austerity, to find common ground on tackling the crisis.

Greece must hold fresh elections after talks on forming a new government broke up without agreement Tuesday, prolonging a tortuous crisis.

The new polls, expected on June 17, follow an inconclusive election on May 6 when a majority of Greeks voted against harsh austerity measures Athens took on in return for a huge European Union-International Monetary Fund bailout.

"We are going again towards elections... under very bad conditions," Pasok party leader Evangelos Venizelos said after the last-ditch talks failed.

"The Greek people must now make the right decisions for the good of the country," stressed Venizelos, who supported the EU-IMF deal in a technocrat government formed last November.

In the meantime the country will be run by a caretaker administration.

Most polls indicate a new vote -- expected in the middle of June -- will see anti-austerity parties improve on their surprising performance in this month's polls, when 70 percent of the electorate voted against the swingeing cuts.

Such an outcome would likely see the bailout deal ripped up and Greece default on its debt obligations before eventually exiting the eurozone.

The precarious financial situation was also highlighted when President Carolos Papoulias said about 700 million euros ($894 million) had been withdrawn from Greek banks on Monday and warned the situation could worsen in coming days.

Despite the global market pessimism Merkel and Hollande, who flew to Berlin hours after his inauguration Tuesday, stressed their desire to keep the eurozone together.

Eyes were on the first meeting between the heads of the eurozone's biggest economies after Hollande defeated Nicolas Sarkozy in last week's election.

Merkel was a Sarkozy ally and the architect of the European Union's fiscal austerity drive. Hollande opposed the speed and depth of the cutbacks demanded by Berlin, and wants to renegotiate the region's fiscal pact.

Germany is committed to budgetary discipline, and Merkel has repeatedly insisted since Hollande's election that the pact, signed by 25 of the 27 EU countries and already ratified in some, is not open to renegotiation.

On currency markets the euro fell to $1.2723 in Asian trade -- its lowest since mid-January, compared with $1.2728 late Tuesday in New York.

It was also at 102.19 yen compared with 102.12 yen.

The dollar was at 80.28 yen against 80.23 yen.

The Dow closed down 0.50 percent, the S&P 500 fell 0.57 percent and the Nasdaq lost 0.30 percent.